Reformers Question If School-Aid Formula Is Out of Touch with Reality

It’s not just rich versus poor or urban versus rural; some basic assumptions of school-funding formula may need to be rethought

Amid the annual handwringing over the state’s perennially underfunded school-aid formula, a number of lawmakers are pushing for a change in the formula that would distribute aid more fairly and help certain districts that have been overwhelmed by large increases in students.

As with most changes to the funding formula, the proposed redistribution of a category called “adjustment aid” would benefit some districts and harm others. But the politics of the plan depart from the usual opposition of urban versus suburban or wealthy versus poor districts, which could improve its chances of becoming law.

“It’s across the whole state. All kinds of school districts are facing this issue,” said Sen. Jennifer Beck (R-Monmouth), who is sponsoring the legislation from the Republican side.

The fate of the change may be tied in part to the jockeying ahead of next year’s gubernatorial election. It is supported by one likely candidate, state Senate President Stephen Sweeney (D-Gloucester), and would almost certainly cut school aid to Jersey City, whose mayor, Steven Fulop, is also expected to run. It has support from Democrats and Republicans, as well as the Christie administration, despite the protests it would provoke in towns that see their school funding reduced.

“This adequacy thing is a little bit more challenging and complex than we think because there are people on the other side that are going to get hurt,” Sen. Jeff Van Drew (D-Cape May) said at a Senate budget committee hearing yesterday. “Some people think (the idea) is morally right, that’s the way it should be, that’s a good thing. But the folks aren’t going to feel that way that are going to take that hit.”

Adjustment aid, sometimes called “hold harmless aid,” was created by the 2008 School Funding Reform Act (SFRA) to make sure districts would not see big drops in their state aid when the new formula went into effect. It was calculated based on their aid packages in 2007-2008, and was supposed to gradually phase out as districts adapted to their lower aid allotment.

But hold harmless has continued to be distributed to the tune of $556 million a year. In addition, the formula has not been fully funded for several years, so distributed aid as a whole “no longer bears any relationship to what districts should be receiving under the SFRA,” according to the Education Law Center.

Many critics argue that the entire funding formula needs to be revised. Rather than take on that monumental task, however, legislators want to change the way adjustment aid is calculated in order to bring what they describe as at least some measure of greater fairness into the process.

Beck said she and Sweeney want to introduce a bill next month that would turn adjustment aid into a tool to move districts closer to spending their adequacy figure -- the amount of money the state has calculated they should spend per student. Starting in 2017-2018, the measure would gradually reduce aid to some districts that are over adequacy and shift the money to qualifying under-adequacy districts.

Beck was not prepared yesterday to release data that might show which districts would lose money, but she said they come from the group of 111 that are over adequacy and receive a combined $175 million in adjustment aid a year. The potentially beneficiaries are 70 under-adequacy districts that together already receive $381 million annually.

One complication is that the amount a district spends is based on both local school tax collections and state aid. Beck and other officials said they want to be careful not to penalize districts that use local taxes, rather than state monies, to fund their schools at close to or higher than the state recommendation.

“We want to make sure the changes we make don’t have unintended consequences,” Beck said. “There are some districts that are over adequacy, but it very well may be because their local property taxpayers chose to provide additional funding to the district, not that the state is giving them too much money.”

While in some cases residents of wealthier towns vote to increase taxes to provide more educational services, Beck warned that adequacy does not always track with affluence.

For example, among those attending the Senate hearing were teachers and residents from Freehold Borough, a working-class district in Monmouth County. It gets no adjustment aid, instead turning to property taxes to “overfund” itself by over $2 million a year, Beck said. A significant influx of students has led to severe classroom overcrowding in the district, which is seeking special permission from the Department of Education for a bond measure to build new facilities.

“One thing I found by going over these numbers, month after month, year after year, is that my preconceived notions of what was happening were oftentimes not correct,” Beck said. “We have a lot of school districts where they may not be economically well off, but because they’ve been so underfunded (by the state), have indeed relied on their local property tax payers to make an additional contribution.”

The districts that stand to lose money under the proposed change include those that receive adjustment aid and are over adequacy due to their state aid.

“There are plenty where the state is providing more aid than it should, and there’s been enrollment loss, and it doesn’t make sense,” Beck said.

She said the state also needs to account for towns that do not contribute enough in local property-tax revenues to the schools, but still receive adjustment aid. The poster child for that phenomenon is Jersey City, which is “slightly” under adequacy, according to commissioner of education David Hespe. The district receives $114.5 million in adjustment aid, in addition to other education aid, but contributes $224 million less in local taxes than it should according to the state’s “fair share” calculation, Beck said.

“Jersey City has had enrollment growth, but I think some of us would argue that they’re locally not doing what they’re supposed to do to help fund the cost of that enrollment growth -- which is counter to a lot of our other school districts, like Freehold Borough,” she said.

Jersey City is not contributing enough in part because of its frequent use of municipal tax abatements, which spur development but have the effect of shifting more of the burden for school funding to the state, Beck said.

The idea of changing adjustment aid seemed to be generally welcomed by other members of the budget committee, including the chair, Sen. Paul Sarlo (D-Bergen). Hespe noted that the Department of Education had proposed a similar change a few years ago, and said it would be important to clearly explain to districts facing cuts why their past adjustment aid has been unfairly high.

Still, the suggestion that Jersey City should receive less aid prompted pushback from Sen. Sandra Cunningham (D-Hudson), who said its students had substantial needs despite the city’s recent economic boom.

“When we think of Jersey City we think of the tall buildings, the glass buildings, the Citi Bike and all the other crazy things that you see when you hear Jersey City,” she said. “What you don’t see in Jersey City is … most of these minority children who are growing up in crime-ridden areas, they’re growing up in drug-ridden areas, they’re growing up in areas in which some of their schools have been there since Abraham Lincoln. Let’s keep in perspective where the people really are that are really using this money, and it’s not downtown.”

The annual budget analysis by the nonpartisan Office of Legislative Services was released yesterday to coincide with the state Department of Education's appearance before the Senate budget committee. The analysis includes line-by-line descriptions of the proposed budget, as well as new background reports on state aid distribution to schools and public funding of charter schools.